Factor analysis

Lecture eight

Miguel Rodo (based on slides from Francesca Little)

Factor analysis (FA)

  • Context: \(\mathbf{Y} \sim \; ?\)
    • Goal: Explain covariance structure of \(Y\) in terms of a smaller number of unobserved variables

Examples of contexts for factor analysis

  • Suppose that we have a set of measurements for a set of variables, and we think that there are some underlying variables we can’t measure that are driving what we observe
  • Example 1: Psychological assessments
    • Observed variables: answers to a set of psychological questions
    • Hidden variables: aspects of personality (e.g. extraversion, neuroticism)
  • Example 2: Consumer behaviour
    • Observed variables: purchase history, demographics, etc.
    • Hidden variables: key drivers of purchase behaviour (e.g. parent or not, age, wealth)
  • Example 3: Diagnosing a medical condition
    • Observed variables: transcriptomic measurements
    • Hidden variables: underlying disease state (e.g. cured, infected, advanced)

Difference between FA and PCA?

::: {.incremental} - Context for PCA: \(\mathbf{Y}\) - In PCA, the focus is on simply creating a set of variables that capture the variance in \(\mathbf{Y}\) - In FA, we now postulate that the variance in \(\mathbf{Y}\) is driven by an underlying set of unobserved variables - In other words, we propose a statistical model that explains the covariance structure, and then fit it - It’s a richer, more extensible framework - This difference is formalised by the maths, which we’ll get into - :::

Lecture content

  • Orthogonal Factor Model (OFM)​
    • Structure
    • Methods for estimation
      • Principal component method
      • Maximum likelihood
    • Factor rotation
    • Factor scores

Orthogonal factor model

  • The orthogonal factor model is a straightforward example of a factor model
  • We’ll describe it in detail, describe how to estimate it and how to best interpret the data using it

Assumption I: linearity

  • Suppose that we have we observe the random vector \(\mathbf{X}:p\times 1\).
  • The first key assumption is linearity.
  • We assume that the \(p\) observed variables are linear combinations of \(m\leq p\) unobserved random variables (the factors) plus some per-variable error term
    • In other words, \(X_i = \mathbf{f}'\mathbf{a}_i + \mathbf{e}\), where \(\mathbf{a}_i\) is your vector of coefficient, \(f\) is the vector of coefficients and \(e_i\) is the error
    • Essentially a linear model where the data, \(\mathbf{f}\), are not observed
    • If the data were observed, what would you have?
      • A multivariate regression model

Assumption II: independence

  • The second key assumption is independence.
  • We assume that:
    • The factors are independent of one another.
      • This is not always plausible, but “forces” the analysis give factors that give different information to one another.
      • For example, when identifying drivers of consumer behaviour “wealth” might be independent of, say, “parent or not”.
    • The errors are independent of one another.
    • The factors are independent of the errors.

Formal description of the OFM

Let \(\mathbf{X} \in \mathcal{R}^p\) have mean \(\mathbf{\mu} \in \mathcal{R}^p\) and be linearly related to a set of \(m\leq p\) unobserved random variables \(\mathbf{F} \in \mathcal{R}^m\) by the equation

\[ \mathbf{X}-\mathbf{\mu} = \mathbf{L}\mathbf{F} + \mathbf{\epsilon}, \]

where \(\mathrm{E}[\mathbf{F}]= \mathbf{0}\), \(\mathrm{COV}[\mathbf{F}]= \mathbf{I}\), \(\mathrm{E}[\mathbf{\epsilon}]= \mathbf{0}\), and \(\mathrm{COV}[\epsilon]= \mathbf{\Psi}\) for \(\mathbf{\Psi}\) a diagonal matrix and \(\mathrm{Cov}[\mathbf{F}, \mathbf{\epsilon}]= \mathbf{0}\).

Terminology

  • \(\mathbf{F}_j\): \(j\)-th common factor
  • \(\mathbf{\epsilon}_i\): \(i\)-th specific factor
  • \(l_{ij}\): loading of \(i\)-th variable on \(j\)-th common factor

Relationship between \(\mathbf{L}\), \(\mathbf{F}\) and \(\mathbf{\epsilon}\)

  • Each element of \(\mathbf{F}\) has unit variance.
    • Therefore, the scale of the variabes in \(X\) is mediated by \(\mathbf{L}\).
  • The loadings induce correlation between the variables (\(\mathbf{X}\)), as they are simply differently-weighted sums of the same factors (even if those factors are independent of each other).
  • The error terms are unrestricted in scale and account for variance unexplained by the common factors.

Relationship with multivariate regression model

  • The essential difference is that the independent (explanatory) variables are unobserved

  • Multivariate multiple regression model formulation:

    • \(\mathbf{Y}_{n \times m} = \mathbf{X}_{n\times(r+1)}\mathbf{B}_{(r+1)\times m} + \mathbf{\epsilon}_{n\times m}\) for \(\mathrm{Cov}[\mathbf{\epsilon}]\) not necessarily diagonal

  • Factor model formulation:

    • \(\mathbf{X}_{n\times p} - \mathbf{\mu}_{n \times p} = \mathbf{F}_{n \times m}\mathbf{L}_{m\times p} + \mathbf{\epsilon}_{n\times p}\) for \(\mathrm{Cov}[\mathbf{\epsilon}]\) diagonal

  • Differences:

    • The “design” matrix is unobserved in the factor model (\(\mathbf{F}\)) but is observed in the multivariate regression model (\(\mathbf{X}\)).
      • Two sources of randomness in the factor model (the factors, \(\mathbf{F}\) and the error terms, \(\mathbf{\epsilon}\)) but only one in the multivariate regression model (the error terms, \(\mathbf{\epsilon}\)).
    • Covariance is not induced by the error terms in the factor model, but is in the multivariate regression model.

Implied covariance structure I

  • The previous assumptions imply the following properties of the covariance structure (proofs at end of the slides):
    • \(\mathrm{COV}[\mathbf{X}]= \mathbf{L}\mathbf{L}' + \mathbf{\Psi}\)
      • This states that \(\mathrm{Var}[\mathbf{X}_i]= \sum_{j=1}^ml_{im}^2 + \psi_ii\).
        • We term \(\sum_{k=1}^ml_{ik}^2\) the communality of the \(i\)-th factor and \(\psi_ii\) the specific variance of the \(i\)-th factor.
      • It also states that \(\mathrm{Cov}[\mathbf{X}_i, \mathbf{X}_j]= \sum_{k=1}^ml_{ik}l_{jk}\).
    • \(\mathrm{COV}[\mathbf{X}, \mathbf{F}]=\mathbf{L}\).

Implied covariance structure II

  • The factor model assumes that \(p(p+1)/2\) covariances variances can be reproduced from \(pm\) factor loadings and \(p\) specific variances.
  • This can always be achieved by setting \(m=p\) and setting \(\mathbf{L}=\mathbf{V}\mathbf{D}/\sqrt{n-1}\) where \(\mathbf{X}=\mathbf{U}\mathbf{D}\mathbf{V}'\).
  • It is not always possible for \(m<p\), however.
    • But we don’t let this detain us in practice - after all, we’re just trying to approximate the matrix.

Solutions are not unique I

  • The mathematical description of the OFM does not imply a unique solution for any given data set.
  • Any given solution is unique only up until an orthogonal rotation.
    • In other words, the solution may be rotatedwithout changing the specific factors and covariance matrix whilst still satisfying the distributional assumptions regarding the common factors.
  • Suppose that we have \(\mathbf{L}\) and \(\mathbf{F}\) such that \(\mathbf{X}=\mathbf{L}\mathbf{F} + \mathbf{\epsilon}\).
  • Let \(\mathbf{T}:m\times m\) be an orthogonal matrix (i.e. \(\mathbf{T}'\mathbf{T}=\mathbf{T}\mathbf{T}'=\mathbf{I}\)).
  • We now show that when we replace \(\mathbf{L}\) by \(\mathbf{L}^*=\mathbf{L}\mathbf{T}\) and \(\mathbf{F}\) by \(\mathbf{F}^*=\mathbf{T}'\mathbf{F}\), the specific factors and covariance matrix are unchanged and that the distributional assumptions regarding the common factors are met.

Solutions are not unique II

  • Firstly, we show that the mean and variance assumptions are met for for the common factors:
    • \(\mathrm{E}[\mathbf{F}^*]=\mathrm{E}[\mathbf{T}'\mathbf{F}]=\mathrm{E}[\mathbf{F}]=\mathrm{0}\)
    • \(\mathrm{Cov}[\mathbf{F}^*]=\mathrm{T}'\mathrm{Cov}[\mathbf{F}]\mathrm{T}=\mathrm{T}'\mathrm{T}=\mathrm{I}\)
  • Secondly, we show that the specific factors are unchanged:

\[ \begin{align*} \mathbf{X} - \mathbf{\mu} &= \mathbf{L}\mathbf{F} + \mathbf{\epsilon} \\ &= \mathbf{L}\mathbf{T}\mathbf{T}'\mathbf{F} + \mathbf{\epsilon} \\ &= \mathbf{L}^*\mathbf{F}^* + \mathbf{\epsilon}, \\ \end{align*} \]

for \(\mathbf{L}^*=\mathbf{L}\mathbf{T}\) and \(\mathbf{F}^*=\mathbf{T}'\mathbf{F}\).

  • Thirdly, the estimated covariance matrix also does not change:
    • \(\hat{\mathbf{L}}^{\ast}\hat{\mathbf{L}}^{\ast\prime}\) $ + = ’ ‘}^{}+ = ’ +$.

Consequence of non-uniqueness

  • Since the solution to the OFM is not unique, we can find initial values for \(\hat{\mathbf{L}}\) and then rotate them to find a solution that is more interpretable.
  • By “interpretable”, we mean one where each factor contributes prominently to a minority of the variables, e.g. factor 1 contributes strongly only to variables 1 and 2, factor 2 contributes strongly only to variables 2 and 5, etc.
  • In the next couple of slides, we’ll consider two approaches for fitting the factor analysis model to a given dataset, and then we’ll consider rotating those initial solutions.

First method of estimation: Principal component method I

First method of estimation: Principal component method II

Example 1: Fitting using PC method I

Example 1: Fitting using PC method II

Example 1: Fitting using PC method III

Example 2: Fitting using PC method I

Example 2: Fitting using PC method II

Second method of estimation: Maximum likelihood

Example 3: Fitting using maximum likelihood I

Revisiting rotation

Factor scores

Example 4: Factor scores

Take-aways I

  • Conceptual understanding of factor analysis’ relationship to PCA and multivariate regression
  • Assumed mean and covariance structure of an orthogonal factor model
    • Implied form for covariance matrix
    • Communality and specific factors
    • Correlation between observed and unobserved variables
  • Two methods of fitting the OFM to a given dataset
    • Principal component method (first principles)
    • Maximum likelihood (factanal package)

Take-aways II

  • Factor rotations
    • Theory behind why they’re permitted
    • Able to justify why they may be useful
  • Interpretation of results of factor analysis
  • Calculation of factor scores
    • From first principles

References

Johnson,RA & Wichern, DW. “Applied Multivariate Analysis”, 6th edition, Pearson International Edition, 2007.